Credit market free fall puts Universal in a fix

Florida's No. 2 theme-park entertainment complex is warning that it could face a cash crunch by next spring, as turmoil in the credit markets - and an obscure clause in its long-standing contract with filmmaker Steven Spielberg - complicate its efforts to restructure nearly $1 billion of debt.

If Universal Orlando is unable to rework the loans in the coming months, it could be forced to slash spending on new attractions, seek more money from its owners or even put a piece of the resort up for sale.

According to a recent filing with federal regulators, the companies that hold and operate the two-park complex must repay or refinance $950 million worth of loans by April 1, 2010. If the companies, led by Universal City Development Partners, are unable to meet the deadline, another half-billion-dollar loan, backed by virtually all of Universal Orlando's property and equipment, also would come due.

Refinancing such large amounts won't be easy. Hobbled by bad loans issued during the credit boom, lenders are now imposing far stricter terms on customers in all industries, tourism included. Six Flags Inc., for example, is considering bankruptcy because the big amusement-park chain has so far been unable to renegotiate its debt.

Universal's attempts to refinance are further complicated by its 22-year-old consulting contract with Spielberg, whose movie hits inspired multiple attractions in its theme parks. A provision that takes effect in June 2010 gives Spielberg, who has been receiving annual consulting fees, including $20 million in 2008, the right to instead demand an immediate buyout that analysts say would likely cost Universal several hundred million dollars.

These issues are colliding even as Universal, like its rival theme parks, slogs through the worst recession in decades. Its attendance and revenue began to fall in 2008, and experts expect those declines to grow this year.

Universal's two theme parks - Universal Studios Florida and Universal's Islands of Adventure - drew a combined 10.6 million people last year, trailing only Walt Disney World and Disneyland in the United States. The Universal complex employs about 13,000.

"Historically, we have managed our debt and we've consistently met our financial obligations," Universal spokesman Tom Schroder said. "We will continue to monitor market conditions and work with all of our financial partners to be prepared for future market conditions."

But the situation is precarious enough that Moody's Investors Service last week cut Universal's debt ratings, some for the second time in less than a month, suggesting that the company is in danger of defaulting on some of its loans.

Analysts say that, at a minimum, Universal will probably be forced to pay significantly higher interest costs and accept smaller credit limits to restructure its debt. That could eat into the resort's ability to spend money on future attractions.

But it's also possible, they say, that Universal City Development Partners will have to seek additional money from its two co-owners, the Blackstone Group and a subsidiary of NBC Universal, or raise money from new investors. That could include offering creditors the right to trade debt for a stake in the company, or auctioning off an ownership interest.

Moody's said in its downgrades that "an ownership transition is a risk" given the looming debt payments.

A spokeswoman for NBC Universal deferred comment to Universal Orlando. A spokeswoman for Blackstone declined to comment.

Moody's and other analysts say a bankruptcy filing is unlikely. They say the Orlando resort's business, which produced $180 million in operating profit last year, is fundamentally strong and stands to benefit from the opening of the Hollywood Rip Ride Rockit roller coaster later this year and the Wizarding World of Harry Potter in 2010. They also say the resort's co-owners have incentive to preserve their investments in the resort, particularly NBC Universal, because of the theme parks' strategic ties to that company's movie and television studios.

Still, Christopher James, the William H. Dial eminent scholar of finance at the University of Florida, noted that the rating Moody's has assigned to some of Universal's debt is near the bottom of its scale.

"That's telling you the situation is pretty serious," James said.

Jason Garcia can be reached at jrgarcia@orlandosentinel.com or 407-420-5414.